Muskingum Watershed Conservancy District mulling frack water deal

Jun. 26, 2012 12:18 PM

Written by

Russ Zimmer

CentralOhio.com

For months, energy companies have been courting the Muskingum Watershed Conservancy District, hoping to come to terms on the sale of water to be used in "fracking" oil and gas wells in eastern Ohio.

Each time, the district, which covers 20 percent of Ohio, has said nothing could be done until this summer, per its procedures. But this Friday, leadership is expected to present an emergency plan to provide water access to one company, Gulfport Energy, for its well near Clendening Lake in Harrison County.

Last summer, the district leased its mineral rights at the site of that well to Gulfport in exchange for $15.6 million as well as a percentage of whatever oil and gas is produced from that well pad.

Current law, according to the district's own legal advice, prevents it from selling water without review by an 18-judge panel, known as the Muskingum Watershed Conservancy Court.

But chief of conservation Sean Logan thinks the district's board can approve a temporary plan Friday at its next meeting in New Philadelphia that would allow Gulfport Energy access to Clendening Lake.

A permanent policy, which would apply in some form to the remaining reservoirs, would be put in place after the conservancy court's annual meeting June 2.

Details about the temporary plan, including the rate charged to Gulfport or limits on a daily amount withdrawn, are not yet available, Logan said.

The district has rebuffed all of those other proposals by maintaining that the judges must decide during their annual meeting before a rate can be set, according to emails obtained by CentralOhio.com through Ohio's open records law.

But Logan said the district has a right to act, with board approval, before the next meeting if it benefits the public. He also believes the law was written to reflect long-term agreements, not days-long affairs.

"Clendening has 8.6 billion gallons," Logan said. "(Gulfport) is looking for 7.5 million. They have told us to get 7.5 million gallons would be 900 semi-truck trips."

"Just from a perspective of being a good neighbor, if we have the ability to reduce that much truck traffic. If you think about it, if you live on that route that's 1,800 trips (round-trip)."

Gulfport, according to an email from Logan to district executive director John Hoopingarner, must have the well completed by June 15 -- why is unclear because Gulfport did not respond to messages -- and cannot wait for the court to convene.

District board vice president David Parham said the board would reject any proposal if "it looks like something the conservancy court will not find acceptable."

"Our court members receive minutes of our board meetings every month, and they're not shy to pick up the phone and contact (our) counsel if they think the board is headed in the wrong direction," he said.

But environmental groups are appalled, arguing that the district's mission is counter to providing water for the hydraulic fracturing process.

"Fracking," they say, is the furthest thing from conservation as it removes water from the watershed permanently. All flowback water and resulting brine must be disposed of in underground injection wells (or recycled, which doesn't happen in Ohio at the moment) because of the chemicals involved.

"This water is removed from the water cycle," said Ron Prosek, vice president of the Network for Oil and Gas Accountability and Protection. "It can't be used for potable water, it can't be used for agriculture. It has to be sequestered underground."

The district is putting its long-term draw -- recreation -- at risk, for an industry that might be gone in a couple of decades, said Lea Harper, an organizer with Southeast Ohio Alliance to Save our Water and homeowner at Senecaville Lake.

Logan contends the agreements will give the district power to cut off water sales in drought conditions or if water levels drop and threaten recreation.

"It's just going to be that ironclad," he said of the deal.

They also will stipulate that the energy companies lay water pipelines to reduce truck traffic now and provide public water later after the wells stop pumping.

"There is a public benefit to supplying water for hydraulic fracturing because large bodies of water are more appropriate sources, you can reduce truck traffic and then many years down the road that infrastructure could be used for public water system," Logan said.

The district hired the U.S. Geological Survey to estimate how many gallons per day could be removed without affecting recreational use or regional water supply from the six reservoirs that drillers have inquired about.

They found that all the lakes could provide millions of gallons on any given April day, but less so during other seasons, without any harm to the water supply. Up to $45,000 for a second, more extensive study by the USGS was approved at its last board meeting.

Gulfport, headquartered in Oklahoma City, has mineral rights or commitments for about 125,000 gross acres in Ohio as of Feb. 20, according to regulatory filings.

One of those leases is with the conservancy district for a well called Boy Scout No. 1 near a campground at Clendening Lake.

A per-acre signing bonus yielded $15.6 million for the district, which also receives a royalty of 15 percent on the wellhead value of however much gas or liquids are produced at that well pad.

Darrin Lautenschleger, spokesman for the district, said it does not seek out lease partners nor have any further commitments that would lead to drilling projects of Gulfport's scale.

"The MWCD is considering potential future leases, but no other leases have been entered into at this time," he said.

In a series of emails from February and March, a Gulfport employee asks MWCD conservation administrator Mark Swiger for water access in several different ways.

Each time, Swiger informs the employee that the district can sell no water without court approval.

"I know it is hard to fathom, but the 18 Judges (sic) from the 18 counties that make up the Conservancy Court meet 1 time / year, the only time all year they are together," Swiger wrote. "In 36 years this is the only issue I have had to take to the Court. It is a requirement of the Ohio Revised Code."

The district has deals to provide water to Cadiz and Cambridge (for emergencies). It also has a limited deal with Carroll County to provide water for the Atwood Lake Resort property.

Cadiz and Cambridge are charged 10 cents and 15 cents, respectively, per 1,000 gallons with a cap for Cambridge at 5 million gallons per day.

Parham said his first instinct is to charge the drillers something similar to those existing contracts, but circumstances specific to oil and gas might call for a higher or lower rate.

For context, if the cost for drillers is the same as what Cambridge pays, the Boy Scout well will result in a $1,125 bill to Gulfport. One sale like that per month at each of the six eastern reservoirs would create $81,000 in revenue for the district. One per week would raise $351,000 annually.

Logan said he would like to see the proceeds reinvested back into the watershed. He declined to answer whether a rate reduction would be an appropriate action.

About 500,000 parcels are subject to the district's maintenance assessment, with the vast majority paying $12 per year. However, landowners with parking lots or structures with big roofs -- factory sites, for instance -- are charged $132 per acre.

The levy raised $9.55 million for the district in 2010, according to the most recent available annual report.

Parham said he doesn't believe that they'll raise enough money to make an abatement practical.

Phil Gerwig, a private citizen who lives near Pleasant Hill Lake southeast of Mansfield, has been following the district's dealings with oil and gas drillers. He argues the district is essentially charging both property owners and drillers for the same water: the run-off from his property eventually becomes reservoir water.

"If the sale plan moves forward, any money gained from these water sales should be a direct dollar for dollar reduction in the property owners assessment," he wrote in an email to CentralOhio.com.

What the district is selling is not technically the water, but the access to it, said Len Black, an administrator in the water planning program at the Ohio Department of Natural Resources.

The conservancy district owns nearly 55,000 acres around its 14 dam-made lakes.

Black said landowners with ponds wholly contained on their property might be approached for water sales, but drillers "might find that purchasing water from one of the conservancy district lakes would be a reliable supply."

Outside of an active conservancy district, drillers have full rights to water sources on public lands, Black said, though they could be sued if another party thinks its water access has been harmed.

Neighboring Pennsylvania, a little farther along it its own shale boom, has similar rules.

In Pennsylvania, 60 wells were drilled into their Marcellus Shale in 2009. Last year, 1,920 wells were completed, according to Penn State University's Marcellus Center for Outreach and Research.

In the parts of the Keystone State where drilling is most concentrated, there are no interstate deals, such as the Great Lakes Compact. Drillers can take what they need, according to a spokesman for the Pennsylvania Department of Environmental Protection.

Drillers are required at the time of well permitting to identify their water supply to ensure they are not targeting inappropriate sources, such as high-quality streams or reservoirs that can't handle the withdrawals, spokesman Kevin Sunday said.

There has been no noticeable effect on water supply, Sunday said.

"On average, the Marcellus Shale (drillers) withdraw about 7 million gallons of water per day in the state," he said. "Of the top 10 water withdrawers in the state they are ninth. They're behind agriculture, they're behind golf courses, and industry uses billions of gallons."